The face of pensions is changing as the world of work undergoes seismic upheavals and mounting uncertainty. Final salary schemes with their promise of retirement certainty are now all but closed, but not before the mistrust created by a number of high profile negligent and criminal mismanagement cases rocked the reputation of pensions as a whole. The move away from “a job for life” and an increasing emphasis on agile working has brought about more fluid, flexible staffing models. With people far more commonly advancing their careers – and even gaining continuity of employment – by moving from role to role, it makes sense to gear pension delivery to increased staff mobility.
Compared to the secure, stable careers enjoyed by baby boomers, the majority of today’s workers switch employers far more often than their parents and grandparents did.
However, it is almost always easier and more financially beneficial for both staff and organisations if they do not have to change pensions whenever employees move from job to job. The compliance hoops, effort and expense of signing up to a new scheme and starting a new savings pot each time are all best avoided. Keeping track of different pots, some going back many decades, can be a major headache for employers and staff alike.
The demands of auto enrolment have made this something that the majority of businesses must consider. No longer is there an implied duty of care in staff pension planning that rogue employers can simply walk away from; instead there are now statutory responsibilities to provide a ‘good quality scheme’ for millions of companies.
And with plans to strengthen the powers of The Pensions Regulator (TPR) set to result in seven years of prison time for bosses who mismanage schemes, issues such as trust, staff morale and reputational value have been joined by even more pressing incentives to get things right.
So, how can life be made easier for everyone involved? What will free both employers and workers up to attend to the pressing need of concentrating on doing what they do best, rather than trying to be pensions experts?
One potent solution is an industry wide defined contribution pension scheme.
As an alternative to setting up their own workplace plan – where red tape can often tie up those assigned to run it – or selecting a provider with high costs who might then prove to be an underperformer, the multi-employer model presents many benefits.
They include the pooling of advisory and administration costs, lower investment charges and streamlined management demands.
Being part of a community of industry colleagues, member businesses benefit from a sense of shared purpose and understanding of one another’s’ needs and circumstances that they wouldn’t enjoy with a general pension provider.
This is often underpinned by the makeup of trustee boards. These tend to be well-represented by participating employers, who work with professional pension advisors and administrators to deliver relevant schemes with the lowest costs and best returns for members and pensioners.
Such boards also have great insight into how the plan must be made to cater for employees’ specific needs, seasonal rhythms and career patterns, rather than being shoehorned into a ‘one size fits all’ schemes.
This ‘family feel’ gives workers a sense of true stakeholding and reassurance that their retirement savings are being stewarded by those who know their circumstances and concerns, rather than a remote, faceless pensions company driven by profit. Their feelings of inclusion and engagement with the programme are invaluable, driving up morale and acting as a powerful incentivisation
Similarly, the importance to people of being able to advance their careers through mobility while enjoying a continuity of pension provision cannot be overstated.
Fully portable between participating companies, members of an industry wide scheme can build on earlier savings. As employment circumstances change, they can continue to pay into the same pension pot as they join, leave and return to companies without penalties, delays or extra administration
As well as the convenience and cost savings, not chopping and changing plans with every career move is a further source of security for staff that means they are less likely to migrate from the sector for their professional development. As such, those that have industry wide schemes can lock in skills, with member companies retaining ready access to, and contact with, the top talent they desperately need in ever more competitive markets.
The defined contributions era is underway. It is hoped that it will be hallmarked by well-managed, high-performing industry plans, with generous employer contributions.
A pension type that fits the bill is the Master Trust, which facilitates greater engagement, communication and financial education for progressive member companies and individual pension holders. It is expected that they will lead the way in shaping the changing face of pensions, particularly with new regulations that give added protection to members set to boost their efficacy. This has meant a clear out of plans that cannot comply, with 36 of the existing 87 either exiting the market or notifying The Pensions Regulator of their intention to do so. The next twelve months will see a refinement and establishment of what pensions of the future may look like. And let’s hope, for the benefit of all current and future savers, that pensions become an engaging, understandable, low cost savings vehicle to enable the best possible retirement outcomes for members.
Andrew Waring – CEO – Ensign